Factors Driving The Housing Market Moving into 2021

According to a study done by Eyul Tekin, “after adjusting for inflation over time the future of the American Dream seems rather gloomy. Median home prices increased 121% nationwide since 1960, but median household income only increased 29%.” This is rather disturbing.

Thankfully, we have companies like Fannie Mae and Freddie Mac who have mandates to keep housing affordable for Americans.

In response to this disparity between the rise in wages versus home prices, Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae said “the rise of women in the workforce has changed the dynamics of house prices to reflect an expectation of two incomes. If you look at median house price in a market relative to median income of a two- person household, it’s at long term normal levels. If you have only one income, that is where the affordability problem is.”

So, it’s not so gloomy, it is societal trends running their course.

The accelerated increase in house pricing is being driven by several factors:

  • The cost of the big three components – land, labor and lumber – have all increased. Lumber cost is at an all-time high. With lower levels of immigration, labor costs have increased and, with strict zoning regulations, especially in urban settings, land has been limited and the price driven up.
  • Low interest rates, which are expected to remain at existing levels though this year, have made borrowing more affordable. That same monthly payment can now buy more house, driving up buyers’ bids.
  • The supply/demand imbalance, which is perhaps the biggest factor. On January 22nd, the National Association of Realtors announced that unsold housing inventory sits at an all-time low of 1.9 months based on the current sales rate. That’s down from 3 months a year ago. Demand, driven by low interest rates and societal shifts due to Covid-19, has outpaced supply.

Why the shortage of houses for sale?

Many people, especially older people driven by COVID-19 concerns, who own homes don’t think now is a good time to sell. In December, the Fannie Mae  Home Purchase Sentiment Index® (HPSI) declined for the second consecutive month and fell to its lowest level since May 2020 as consumers adjusted to the worsening COVID-19 conditions of the first few weeks of December.

“Both the ‘Good Time to Sell’ and ‘Good Time to Buy’ components fell significantly, with respondents overwhelmingly noting the unfavourability of economic conditions,” Duncan said. “In particular, the sell-side component fell for the first time since April and by 18 points, reversing most of the increases of the past three months and implying to us that, at least temporarily, potential home sellers might wait to list their homes. If so, this could have the effect of perpetuating already-tight inventory levels and supporting additional (albeit lesser) home price growth, which could contribute to a further moderating of home sales.”  When supply falls more sharply than demand, prices increase.

Supply is Expected to Increase Going Forward

The U.S. Commerce Department announced that housing starts jumped 21.4% on a year-over-year basis and building permits soared 9.2%, the highest level in 13 years. “The good news about the house rise is that markets are performing the way you would expect. When prices go up and profits go up that is a signal for others to enter production and increase supply, and that’s certainly happening,” Duncan said. However, it might take a while for the supply to catch up with demand. Experts say that homebuilders and construction companies will have to continue these increased efforts though 2022 to meet demand levels.

It’s Not Just About Building More Houses

More people may be putting their houses on the market as well. As the HPSI indicates, there is pent up demand on the sell side.

Also, the MBA estimates that 5.54% of mortgage loans are in forbearance. When forbearance ends, some homeowners will be faced with a tough choice, either sell or get foreclosed upon. Unless they bought very recently, chances are they have built up enough equity to make selling the best option. This too will add to inventory levels.

The impact of the end of forbearance on the housing market is a matter of debate, but Fannie Mae sees the impact as one reason it is forecasting housing appreciation in 2021 to be 4.5% rather than the 10% of 2020. (Note: the historical norm for annual price increase is 3.75%)

Millennials were already starting to move from urban to suburban areas. During the financial crisis Millennials were looking for jobs and the places they were available was in the urban centers. This meant many lived in apartments. Now that they have children that are reaching school age they are moving out to areas with more land, more sports, good schools and other amenities.

They are moving from urban areas to the suburbs. When COVID-19 hit, the plans these people had for the next three years accelerated. The recent housing starts data support this, showing single family housing starts rose 12% while multi-family fell 13.6%.

How sustainable this movement is remains to be seen. If this is just an acceleration of buying that would have happened anyway, it implies that the supply/demand balance would move toward more supply, less demand a few years out.

There are a lot of factors at play when it comes accessing the cost of housing. It seems that the house prices will continue to rise in the short term and have the potential to grow at a slower pace, or even decline slightly, a few years out. With that said, if you have to borrow to buy a house, now is a good time to buy. You might just have to be more patient or more aggressive than you would have been otherwise given the competition.

Source: themortgageleader.com

Bodnar of MMG: Rates Move Higher, But We May Have Found a Bottom

Bill Bodnar of The Mortgage Market Guide (MMG) says that rates moved higher this week, but we might have found a bottom.

“We have numbers for you, your clients and partners to follow,” Bodnar says. “Rising lumber prices are hitting New Home Builders. Was today’s weak Housing Starts a sign of things to come?”

Watch the short video to see what it means for you.

[embedded content]

Source: themortgageleader.com

Permitting Soars as Builders Prep for Spring

Builders appear to be prepping for a huge spring.
While the U.S. Census Bureau and the Department of Housing and Urban
Development report that housing starts were down in January, typically the case
in winter, housing permits were issued at what is probably a post housing crisis
high.

The seasonally adjusted rate of permitting during the
month was at an annualized 1,881,000 units, a 10.4 percent jump from December’s
rate of 1,704,000, itself a more than 4 percent monthly increase, up 22.5
percent from the 1,536,000 permits issued in January 2020.

Analysts polled by Econoday didn’t come close with
their estimates, which anticipated a slight monthly retreat. Predictions ranged
from 1,600,000 to 1,715,000 with a consensus of a 1,670,000-permit rate.

Single-family permits were estimated at 1,269,000, a
3.8 percent increase over December’s revised (from 1,226,000) estimate of
1,223,000 and up 29.9 percent year-over-year. Multifamily permits jumped 28.0
percent to 435,000 annual units, a 7.9 percent annual increase.

On a non-adjusted basis there were 128,300 permits
issued during the month compared to 133,600 in December. Single-family permits
accounted for 83,900 of those issued, down from 88,500 the previous month.

Housing starts, which had been stronger than
anticipated in December, pulled back in January. The seasonally adjusted annual
rate for the month was 1,580,000, down 6.0 percent from the 1,680,000-unit rate
(revised from 1,669,000)  that ended
2020. The rate of starts also fell behind the estimated 1,617,000 a year
earlier by 2.3 percent.

Analysts missed badly on their predictions for housing
starts as well. They had expected only a small decline from the prior month
with a consensus of 1,655,000 units.

Single family starts fell 12.2 percent to 1,162,000 units
from a downwardly revised rate of 1,323,000. The original estimate was
1,338,000 units. Single-family starts are still up 17.5 percent year-over-year.
Multifamily starts rose 16.2 percent to 346,000 but are down 35.1 percent from
the pace in January 2020.

There were 109,500 housing starts during the month,
77,900 of which were single family units. The unadjusted numbers in December
were 115,400 and 89,400, respectively.

Residential units were completed at a seasonally adjusted
annual rate of 1,336,000, down 2.3 percent from December but 2.4 percent higher
than a year earlier. The rate of completion of single-family units rose 10.0
percent to 1,036,000, an annual growth of14.3 percent. Multifamily completions
of 296,000 annualized units marked 28.3 percent monthly and 23.9 percent annual
declines.

On a non-adjusted basis, 93,800 homes were brought on
line during the month compared to 129,900 in December. Completed single-family
houses numbered 73,400 compared to 91,500 a month earlier.

At the end of the reporting period there were an
estimated 1,280,000 housing units under construction, 620,000 of which were
single-family houses. At the same time there were 204,000 permits issued and
awaiting construction. The single-family permit backlog was 114,000.

Permitting increased by 39.3 percent from the prior
month in the Northeast and was 8.9 percent higher than in January 2020. Starts up
2.3 percent from December but lost 38.2 percent from the pace the prior January.
Completions fell by 14.4 percent and 2.9 percent from the two earlier periods.

The Midwest had an 0.8 percent dip in permitting in January,
but those permits were still 13.4 percent higher than a year earlier. Starts
fell 12.3 percent from the previous month but rose 28.5 percent on an annual
basis. Completions were down for both periods, by 7.9 percent and 4.9 percent,
respectively.

The South saw increases of 8.3 percent and 26.5
percent in permitting for the month and year. Starts were down 2.5 percent from
December but 4.7 percent above the level the prior January. Completions moved
higher by 5.4 percent compared to December and 19.7 percent year-over-year.

Permits in the West were up 11.7 percent from December
and 25.9 percent from a year earlier, but starts declined from both earlier
periods, by 11.4 percent and 9.2 percent, respectively. Completions decreased 11.5
percent and 21.4 percent.

Source: mortgagenewsdaily.com

MBS RECAP: No Easy Answers Today; Still Anyone’s Game

Bonds were weaker earlier in the trading session but rallied back mid-morning before coasting mostly sideways into the close.  Bond bulls were frustrated by the inability to break the floor at 1.27-1.28% in 10yr yields.  Bond bears were frustrated by the clear unwillingness to explore new highs compared to yesterday.  In other words, it was an “inside day” with lower highs and higher lows, and part of a 2-day consolidation following the highest yields in 11+ months.  Such consolidations can be preludes to big bounces OR renewed selling pressure.  There weren’t any major clues in today’s session about which side is going to win.  

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Jobless Claims 861 vs 765 f’cast, 848k prev

  • Import Prices 1.4 vs 1.0 f’cast, 1.0 prev

  • Export Prices 2.5 vs 0.7 f’cast 1.3 prev

  • Housing Starts 1.58m vs 1.658m f’cast, 1.68m prev

  • Building Permits 1.881m vs 1.687m f’cast, 1.704 prev

Market Movement Recap

08:41 AM

Treasuries started stronger in Asia as trading picked back up after Lunar New Year holiday closures.  Yields have been rising modestly since then and stocks have been sliding.  8:30am econ data passed without fanfare leaving 10yr yields 1.5bps higher at 1.297 and UMBS 2.0 coupons nearly an eighth lower.

10:57 AM

Bouncing back in the other direction now after AM weakness took yields to highs by 10:15am.  MBS had been down nearly a quarter of a point, but have bounced back by an eighth (down only an eighth now).  

02:54 PM

Friendly bounce continued, more so for MBS than Treasuries, but both are near unchanged levels currently.  Stocks recovered a bit as well, so we can continue to watch the “accommodation” trade (i.e. stocks and bond yields moving in opposite directions as the market reacts to changes in Fed policy potential.  This is far from the only game in town, but it could be a factor).

04:31 PM

Slight weakness heading into the after hours close, but not enough to make a case for any new momentum.  The takeaway remains equivocal with a clear rejection of the stronger levels, but no threatening move back to the weaker levels.  


MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

MBS

UMBS 2.0

101-30 : -0-03

Treasuries

10 YR

1.2970 : -0.0020

Pricing as of 2/18/21 4:41PMEST

Today’s Reprice Alerts and Updates

11:00AM  :  Reprice Risk Fading as Bonds Bounce

10:19AM  :  ALERT ISSUED: Negative Reprice Risk Increasing For Some Lenders

8:40AM  :  Little-Changed at Slightly Weaker Levels After Data


Economic Calendar

Time Event Period Actual Forecast Prior
Thursday, Feb 18
8:30 Export prices mm (%) Jan 2.5 0.7 1.1
8:30 Import prices mm (%) Jan 1.4 1.0 0.9
8:30 Building permits: number (ml) Jan 1.881 1.678 1.704
8:30 Housing starts number mm (ml) Jan 1.580 1.658 1.669
8:30 Philly Fed Business Index * Feb 23.1 20.0 26.5
8:30 Build permits: change mm (%) Jan 10.4 4.2
8:30 House starts mm: change (%) Jan -6.0 5.8
8:30 Jobless Claims (k) w/e 861 765 793
Friday, Feb 19
9:45 PMI-Composite (source:Markit) * Feb 58.7
10:00 Exist. home sales % chg (%)* Jan -1.5 0.7
10:00 Existing home sales (ml)* Jan 6.61 6.76

Source: mortgagenewsdaily.com

Miami-Dade Total Home Sales Continue Surging in January 2021

Miami-Dade County total home sales posted a double-digit increase for the fifth consecutive month in January 2021 as pent-up demand and record-low mortgage rates continue fueling transactions, according to the MIAMI Association of Realtors (MIAMI) and the Multiple Listing Service (MLS) system.

Miami-Dade County total home sales jumped 19.1% year-over-year in January 2021, from 1,857 to 2,211. Miami single-family home sales rose 9.1% year-over-year, from 887 to 968. Miami existing condo transactions increased 28.1% year-over-year, from 970 to 1,243.

“Double-digit home sale increases for five consecutive months speaks to the resiliency of the Miami real estate market, the global pent-up demand for South Florida properties, record-low mortgage rates, purchases from home buyers in tax-burdened states, the importance of the home as a hub in our daily lives and increased interest from international buyers,” MIAMI Chairman of the Board Jennifer Wollmann said.

Miami real estate accounted for 12,918 total home sales in the five-month stretch from September 2020 to January 2021. That is a 18.4% increase in the number of total transactions compared to the five-month stretch from September 2019 to January 2020.

Lack of inventory in certain price points is impacting sales, particularly for single-family homes. Increased housing starts and more sellers listing properties in 2021 should help alleviate the lack of supply.

Miami Luxury Condo Sales Surge 130.6% in January 2021
Miami single-family luxury ($1-million-and-up) transactions jumped 114.1% year-over-year to 167 sales in January 2021. Miami existing condo luxury ($1-million-and-up) sales increased 130.6% year-over-year to 113 transactions.

Luxury months of supply continues to trend downward for all property types, month-over-month, and year-over-year.

Miami single-family homes priced between $400K to $600K surged 51.5% year-over-year to 294 transactions in January 2021. Miami existing condo sales priced between $400K to $600K increased 64.5% to 153 transactions.

Record-low interest rates; a robust S&P 500; the appeal of stable assets in a volatile economy; homebuyers leaving tax-burdened Northeastern states to purchase in Florida (no state income tax); and work-from-home and remote-learning policies have all combined to create a robust market for luxury single-family properties.

110 Consecutive Months of Price Appreciation in Miami
Strong demand coupled with limited supply continue to drive price appreciation in Miami-Dade.

Miami-Dade County single-family home prices increased 25.2% year-over-year in January 2021, increasing from $375,000 to $469,500. Miami single-family home prices have risen for 110 consecutive months, a streak of more than 9 years. Existing condo prices increased 14.3% year-over-year, from $245,000 to $280,000. Condo prices have increased or stayed even in 112 of the last 116 months.

Miami, where the median price is still comparable to 2007 figures, remains a bargain compared to other global cities. In Miami, $1 million can net homebuyers 93 square meters of prime property, according to Knight Frank’s 2019 The Wealth Report. Monaco (16 square meters), Hong Kong (22), New York (31), Los Angeles (36) and others offer significantly less prime land for $1 million.

Single-Family Home and Condo Dollar Volume Increases
Single-family home dollar volume increased 86.4% year-over-year, from $471.7 million to $879.2 million. Condo dollar volume increased 69.4% year-over-year, from $393.9 million to $667.1 million.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 2.74% in January, up from 2.68% in December. The average commitment rate across all of 2020 was 3.11%.

Lack of access to mortgage loans continues to inhibit further growth of the existing condominium market. Of the 9,307 condominium buildings in Miami-Dade and Broward counties, only 13 are approved for Federal Housing Administration loans, down from 29 last year, according to Florida Department of Business and Professional Regulation and FHA.

A better condo approval process is expected to increase sales. The guidance, which went into effect in October 2019, extends certifications from two years to three, allows for single-unit mortgage approvals, provides more flexibility with owner/occupancy ratios, and increases the allowable number of FHA loans in a single project. The changes, many of which MIAMI and NAR have championed, are expected to generate increased homeownership opportunities.

Miami Distressed Sales Stay Low, Reflecting Healthy Market
Only 1.8% of all closed residential sales in Miami were distressed last month, including REO (bank-owned properties) and short sales, compared to 5.9% in January 2020. In 2009, distressed sales comprised 70% of Miami sales.

Total Miami distressed sales decreased 64.5%, from 110 to 39.

Short sales and REOs accounted for 0.7% and 1.1% year-over-year, respectively, of total Miami sales in January 2021. Short sale transactions decreased 37.5% year-over-year while REOs decreased 72.1%.

Nationally, distressed sales represented less than 1% of sales in January 2021, down from 2% in January 2020.

Miami Real Estate Selling Close to List Price
The median percent of original list price received for single-family homes was 96.8% in January 2021, up 1.3% from 95.6% last year. The median percent of original list price received for existing condominiums was 94.3%, up 1% from 93.4% last year.

The median number of days between listing and contract dates for Miami single-family home sales was 28 days, a 44% decrease from 50 days last year. The median number of days between the listing date and closing date for condos was 63 days, down 23.2% from 82 days.

The median time to sale for single-family homes was 80 days, a 18.4% decrease from 98 days last year. The median number of days to sale for condos was 111 days, a 9.8% decrease from 123 days.

National and State Statistics
Nationally, total existing-home sales transactions completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.6% from December to a seasonally-adjusted annual rate of 6.69 million in January. Sales in total climbed year-over-year, up 23.7% from a year ago (5.41 million in January 2020).

In January, closed sales of single-family homes statewide totaled 21,587, up 18% year-over-year, while existing condo-townhouse sales totaled 9,608, up 24.6% over January 2020. Closed sales may occur from 30- to 90-plus days after sales contracts are written.

Nationally, the median existing-home price for all housing types in January was $303,900, up 14.1% from January 2020 ($266,300), as prices increased in every region. January’s national price jump marks 107 straight months of year-over-year gains.

The statewide median sales price for single-family existing homes was $305,000, up 15.1% from the previous year, according to data from Florida Realtors Research Department in partnership with local Realtor boards/associations. Last month’s statewide median price for condo-townhouse units was $230,000, up 15% over the year-ago figure. The median is the midpoint; half the homes sold for more, half for less.

Miami’s Cash Buyers Top National Figure
Miami cash transactions comprised 33.1% of January 2021 total closed sales, compared to 33.8% last year. The national figure for cash buyers is 19%.

Miami’s high percentage of cash sales reflects South Florida’s ability to attract a diverse number of international homebuyers, who tend to purchase properties in all cash.

Condominiums comprise a large portion of Miami’s cash purchases as 43% of condo closings were made in cash in January 2021 compared to 20.4% of single-family home sales.

Seller’s Market for Single-Family Homes, Buyer’s Market for Condos
Inventory of single-family homes decreased 45.8% in January 2021 from 6,277 active listings last year to 3,401 last month. Condominium inventory decreased 15.4% to 12,608 from 14,902 listings during the same period in 2020.

Inventory of active listings has decreased the last 17 months for single-family homes.

Months supply of inventory for single-family homes decreased 44.6% to 3.1 months, which indicates a seller’s market. Inventory for existing condominiums decreased 9.6% to 11.3 months, which indicates a buyer’s market. A balanced market between buyers and sellers offers between six- and nine-months supply.

Months supply of inventory is down since July 2019 for single-family, reflecting strong demand.

Total active listings at the end of January 2021 decreased 24.4% year-over-year, from 21,179 to 16,009. Active listings remain about 60% below 2008 levels when sales bottomed.

New listings of Miami single-family homes decreased 13.7% to 1,541 from 1,785. New listings of condominiums increased 1.3%, from 2,468 to 2,500.

Nationally, total housing inventory at the end of January amounted to 1.04 million units, down 1.9% from December and down 25.7% from one year ago (1.40 million). Unsold inventory sits at a 1.9-month supply at the current sales pace, equal to December’s supply and down from the 3.1-month amount recorded in January 2020. NAR first began tracking the single-family home supply in 1982.

To access January 2021 Miami-Dade Statistical Reports, visit http://www.SFMarketIntel.com

Source: realtybiznews.com

Mortgage Rates Today, Feb. 13 & Rate Forecast For Next Week – The Mortgage Reports

Today’s mortgage and refinance rates 

Average mortgage rates edged higher yesterday. There have been a lot of small, daily ups and downs recently. But they’ve generally canceled each other out. And Freddie Mac’s weekly averages haven’t moved at all over the last three reports.

Of course, there’s always a chance that rates will rise or fall suddenly and sharply. But it’s hard to spot a reason why they should this week. And that means the danger of continuing to float your rate may be lower than normal. But it also means the potential rewards of doing so may be lower, too.

Monday is Presidents’ Day. And US markets are closed. So our daily report will be back on Tuesday.

Find and lock a low rate (Feb 20th, 2021)

Program Mortgage Rate APR* Change
Conventional 30 year fixed 2.79% 2.793% +0.01%
Conventional 15 year fixed 2.363% 2.372% Unchanged
Conventional 20 year fixed 2.825% 2.832% +0.08%
Conventional 10 year fixed 2.321% 2.378% Unchanged
30 year fixed FHA 2.517% 3.187% +0.01%
15 year fixed FHA 2.385% 2.965% +0.07%
5 year ARM FHA 2.5% 3.207% Unchanged
30 year fixed VA 2.093% 2.263% +0.01%
15 year fixed VA 1.88% 2.198% Unchanged
5 year ARM VA 2.5% 2.386% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Find and lock a low rate (Feb 20th, 2021)


COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.

Should you lock a mortgage rate today?

If I were currently floating my rate, I probably would lock it today or soon. That’s for two reasons. First, the possibility of a sudden, sharp rise never goes away, though it currently looks unlikely.

And, secondly, the chances of my gaining much from continuing to float look too low to make the gamble worthwhile. Of course, the possibility of a sudden fall is always there. But it’s roughly as improbable as a sudden rise.

So my recommendation is to lock if you’re closing within 30 days of closing.

  • LOCK if closing in 7 days
  • LOCK if closing in 15 days
  • LOCK if closing in 30 days
  • FLOAT if closing in 45 days
  • FLOAT if closing in 60 days

However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So be guided by your gut and your personal tolerance for risk.

Compare top lenders

What’s moving current mortgage rates

We’ve already established that nothing much is moving current mortgage rates. They’re barely moving at all.

Of course, they’ll set off decisively one day. But precisely when is impossible to predict. Indeed, even the direction they’ll take is uncertain.

Risk of big falls

Yesterday, the S&P 500 and Nasdaq stock indexes closed at record highs. It’s been clear for a long time that the stock market generally has become increasingly divorced from economic reality.

Of course, those who make these markets would claim that they’re looking ahead to a rosy future in the medium or long term. But they have lousy records as soothsayers. And markets’ current highs are based on “confidence,” which is code for faith-based trading.

Stock market overvalued?

Also yesterday, the Federal Reserve Board revealed the “hypothetical scenarios for its 2021 bank stress tests.” And they included “asset prices dropping sharply, including a 55 percent decline in equity prices.”

Now, obviously, the Fed isn’t predicting a 55% slump in stock prices. But it takes the possibility of a significant fall seriously enough to make banks prove they could survive such an event.

And any such fall would likely drag down mortgage rates. Those who got out of the stock market would need to put their remaining money somewhere. And they’d want to buy safe or safer assets, including US Treasury bonds and mortgage-backed securities. Such extra demand would push up prices, which — as a mathematical certainty — would drive down yields and mortgage rates.

And those lower rates aren’t dependent on a stock market slump. They tend to go hand-in-hand with economic distress, which is why they’re so low at the moment. So any worsening of the economy could produce lower mortgage rates, even if the stock market continues to defy gravity.

Risk of big rises

Most economists think the economy will improve as the vaccination drive gains traction and the pandemic recedes. And that should bring higher mortgage rates. That’s probably the most likely scenario at the moment.

However, it could be months before a firm upward trend emerges. And, even then, it may be a gradual one. But, inevitably, there’s a possibility of it not happening at all.

For example, COVID-19 already has several mutations. And, were a future one to prove resistant to vaccines, that could undermine or slow the economic recovery, something that would likely bring lower mortgage rates.

All the above is a roundabout way of saying that there’s even less certainty about the future than normal. And we may one day look back on this period, when mortgage rates are becalmed, with fond nostalgia.

Economic reports next week

The big economic report next week is Wednesday’s retail sales. The others would have to be stunningly good or bad to move mortgage rates far.

Here are next week’s main economic reports:

  • Wednesday — January retail sales, plus industrial production and capacity utilization. Also January producer price index, a predictor of inflation
  • Thursday — Weekly new claims for unemployment insurance. Plus January housing starts and housing permits
  • Friday — January existing home sales

More important than these economic reports is likely to be any legislative progress or setbacks encountered by the administration’s $1.9 trillion pandemic relief package, currently making its way through Congress. Successes may mean higher rates while failures lower ones.

Find and lock a low rate (Feb 20th, 2021)

Mortgage interest rates forecast for next week

Just as over the last couple of weeks, there’s little reason to expect sharp changes in mortgage rates this week. They’ll probably continue to move up and down just a little, going nowhere fast.

Mortgage and refinance rates usually move in tandem. But note that refinance rates are currently a little higher than those for purchase mortgages. That gap’s likely to remain constant as they change.

How your mortgage interest rate is determined

Mortgage and refinance rates are generally determined by prices in a secondary market (similar to the stock or bond markets) where mortgage-backed securities are traded.

And that’s highly dependent on the economy. So mortgage rates tend to be high when things are going well and low when the economy’s in trouble.

Your part

But you play a big part in determining your own mortgage rate in five ways. You can affect it significantly by:

  1. Shopping around for your best mortgage rate — They vary widely from lender to lender
  2. Boosting your credit score — Even a small bump can make a big difference to your rate and payments
  3. Saving the biggest down payment you can — Lenders like you to have real skin in this game
  4. Keeping your other borrowing modest — The lower your other monthly commitments, the bigger the mortgage you can afford
  5. Choosing your mortgage carefully — Are you better off with a conventional, FHA, VA, USDA, jumbo or another loan?

Time spent getting these ducks in a row can see you winning lower rates.

Remember, it’s not just a mortgage rate

Be sure to count all your forthcoming homeownership costs when you’re working out how big a mortgage you can afford. So focus on your “PITI” That’s your Principal (pays down the amount you borrowed), Interest (the price of borrowing), (property) Taxes, and (homeowners) Insurance. Our mortgage calculator can help with these.

Depending on your type of mortgage and the size of your down payment, you may have to pay mortgage insurance, too. And that can easily run into three figures every month.

But there are other potential costs. So you’ll have to pay homeowners association dues if you choose to live somewhere with an HOA. And, wherever you live, you should expect repairs and maintenance costs. There’s no landlord to call when things go wrong!

Finally, you’ll find it hard to forget closing costs. You can see those reflected in the annual percentage rate (APR) you’ll be quoted. Because that effectively spreads them out over your loan’s term, making that higher than your straight mortgage rate.

But you may be able to get help with those closing costs and your down payment, especially if you’re a first-time buyer. Read:

Down payment assistance programs in every state for 2020

Compare top lenders

Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.

Source: themortgagereports.com

Time to Wake Up To The New Mortgage Rate Reality

There’s no precedent for the winning streak enjoyed by mortgage rates in the 2nd half of 2020. We’ve never seen so many new record lows in the same year, and we never spent as much time at those lows (not even close). All of the above makes it easy to get lulled into a false sense of low-rate security, but it’s time to wake up.

Actually, the alarm has been going off for a while now.  Previous posts pointed out the disconnect between the bond market and mortgage rates on multiple occasions in 2020.  Near the end of the year, we warned against complacency in no unspecific terms.

Following the Georgia senate election, we’ve been tracking a surge in bond market volatility based on the expectation that it would increasingly spill over to the mortgage rate world. 

(Read More: 1/8/21: Have We Seen The End of Record Low Rates?)  

As of this week, that spillover arrived in grand fashion with many lenders quoting rates that are as much as three eighths of a point higher than they were last week.  That means if you were looking at something in the 2.75% neighborhood on Friday, it could be 3.125% today.  What gives?

Again, the upward pressure is nothing new.  Treasury yields have been telling the story since August and mortgage rates have finally used up enough of their cushion that they’ve been forced to follow the broader trends. 

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Why have things been so abrupt?  Using up “the cushion” is one thing, but that alone doesn’t force rates to go higher.  For that, we need “broader bond market volatility.”  In other words, Treasury yields need to be spiking. 

As it turns out, that’s been one of their favorite things to do in 2021.  If it seems abrupt, that has a lot to do with bonds coiling in a conservative pattern heading into the Georgia senate election, and unleashing chaos thereafter.

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The election is old news now though.  It simply got the ball of volatility rolling.  Most recently, plummeting covid case counts, improved vaccine distribution, stronger economic reports, and progress on fiscal stimulus reinvigorated the volatility.  This week, 10yr yields broke up and out of their prevailing “trend channel” (the parallel lines seen below). 

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There’s no magic rule that says Treasuries have to stay inside those red lines, but this sort of breakout can be a cue for traders to intensify selling pressure.  In other words, that upper line was a trigger for yields to move even higher.

“But wait… I thought the Fed said it was keeping rates low for YEARS.  What happened to that?”

The Fed sets the Fed Funds Rates… NOT mortgage rates.  The Fed Funds Rate is a super short-term rate (“overnight,” in fact).  10yr Treasuries, on the other hand, last 10 years.  The average 30yr fixed mortgage lasts between 5 and 10 years depending on the market conditions.  Investors place different premiums on rates with different terms.  Simply put, the Fed Funds Rate is indeed still at rock bottom, but longer-term rates are not.

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This isn’t anything new or different, for what it’s worth.  The Fed Funds Rate has always ebbed and flowed in relation to longer term rates.

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“But wait… I heard that mortgage rates are still really low and that they only went up a tiny amount this week!”

Well, that depends on your perspective.  Is 3.125% still really low for the average 30yr fixed mortgage rate?  Yes!  That was the all-time low before covid.  But is it much higher relative to the past few weeks and months?  Here too, it depends on your perspective, so let’s leave it at this: rates rose more this week than on any other week in the past 11 months.

If you’ve heard that rates only rose slightly, it may have to do with headlines quoting Freddie Mac’s weekly survey.  While that survey is accurate over time, it doesn’t capture short-term volatility.  It also tends to stop measuring most of any given week’s volatility on Monday, and Monday was a holiday!  As such, it’s lagging the reality on the street.  

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On the economic data front, Retail Sales (this week’s biggest report) rose at the 4th fastest pace since records began in the early 90s.  In general, stronger economic data puts upward pressure on rates.

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In terms of housing-specific data, this week brought an update on residential construction numbers.  They’re still stellar.  

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Whereas Housing Starts are subject to weather-related delays and other potential roadblocks, building permits are a bit more free-flowing, and they just set another long-term high.

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Source: mortgagenewsdaily.com

Homebuilders preparing for big 2021, data suggests

Overall housing starts in January totaled 1.58 million units, a decline of 6% from December, according to the latest statistics from the U.S. Census Bureau. But there’s reason for optimism from homebuilders – a huge spike in building permits.

“Despite a modest month-over-over decline, single-family housing starts are up 17.5% from one year ago,” said Odeta Kushi, deputy chief economist at title insurance firm First American. “Single-family permits, a leading indicator of future starts, are up nearly 30% from one year ago. It’s still not enough to significantly narrow the gap between supply and demand, but it’s a step in the right direction.”

A total of 1.881 million residential building permits were issued last month to homebuilders, roughly 1.2% above December’s tally but more than 22% greater than were issued a year ago.

Interestingly, the overall decrease in housing starts last month was driven by single-family starts, which decreased by 12.2% from the prior month, while multi-family starts increased by 17.1% from last month. A seasonal dip was to be expected, experts said, but the widespread distribution of a COVID-19 vaccine should give the economy – and the housing industry – a shot in the arm in 2021.

Doug Duncan, Fannie Mae’s senior vice president and chief economist, said the vaccine combined with President Joseph Biden’s $1.9 trillion fiscal stimulus will drive consumer interest in locking-in historically low mortgage rates, thus driving the amount of home sales upward.


Making housing more affordable by bridging the affordable supply gap

In the last few years, the number of existing single-family homes for sale has decreased. But home prices have increased. To make homeownership a possibility for everyone, there needs to be a higher supply of affordable homes.

Presented by: Fannie Mae

“We assume that the proposed fiscal stimulus of around $1.9 trillion will be passed in mid-March, and that growth will accelerate sharply beginning in the second quarter,” Duncan said. “If 2020 was the year of the virus, then 2021 will more than likely be the year of the vaccine. Whether the vaccines are effective, including with the new virus strains, and how broadly and timely they can be distributed remain key questions.”

Economists are wary, Duncan said, of a potential boom-or-bust scenario for the housing industry in the new year: the combination of rising interest rates from record-low levels, a high national debt, and the risk of rising inflation.

“Very strong growth in the second half of 2021 could push inflation, and thereby rates, up significantly in 2022, thus invoking a Fed response of tightening and a significant deceleration later in 2022,” Duncan said. “This is not our base case scenario, but we see it as a significant risk moving forward.”

Added John Pataky, TIAA Bank executive vice president: “With rates creeping up and homebuilding still partially restricted by the pandemic, the housing market’s next phase of growth may be much more of a grind.”

Privately-owned housing starts in January hit an adjusted rate of 1.336 million, down 2.3% from December but up 2.4% from January 2020.

Single-family authorizations in January were at 1.269 million, up 3.8% from December.

January housing starts increased in the Northeast (+2.3%), but decreased in the Midwest (-12.3%), the West (-11.4%), and the South (-2.5%).

Where homebuilders go from here is of great interest to industry experts: Construction rates are expected to climb in the opening quarter of 2021 and possibly into the summer thanks to high-lumber prices and low land inventory, but the demand for homes is expected to remain high thanks to low interest rates and the hope of President Joseph Biden’s $15,000 first-time homebuyer tax credit.

“Lumber now costs more than double what it did this time last year – a fact that that has reportedly caused some builders to stop some projects mid-way,” said Matthew Speakman, Zillow economist. “Land and labor shortages also continue to hinder the ability to take on new projects.”

Still, Speakman noted, homebuilders’ earned some benefit of the doubt with the way they handled hurdles in 2020.

“Home construction was a source of strength in the U.S. economy in 2020, as builders strove to keep up with robust demand for housing and put up homes at the strongest pace in a decade and a half,” he said.  

Source: housingwire.com

About: Kiplinger’s Economic Outlooks

Gross Domestic Product

Gross domestic product is the broadest indicator of the economy, measuring the value of final goods and services produced in the U.S. in a given time period. It is perhaps the most closely watched indicator as well, serving as a guidepost for Federal Reserve interest rate policy and for budgeting in both government and private industry.

At Kiplinger, we examine what trends are driving GDP up (or down) and forecast its future direction quarter by quarter. Read our current forecast »

Employment

If gross domestic product is the broadest indicator of the economy, employment is the one most personally felt. These are people’s jobs we’re talking about.

Two distinct metrics make up the employment forecast. The more important one is the “payroll report,” a summation by the Department of Labor of how many jobs the economy has created (or lost) each month. This data is broken out by sector, such as manufacturing, mining and health care. Note that simply to keep up with population growth, the economy needs to add more than 100,000 jobs every month; otherwise the unemployment rate will rise.

That rate is the other closely watched figure. It’s a simple division of the number of people who have looked for work in the prior four weeks but who do not have a job by how many people are currently in the labor force. That simplicity belies some underlying concerns about the unemployment rate. One key one: Potential workers who aren’t actively looking for work aren’t included in the calculation. Read our current forecast »

Interest Rates

Interest rates are of tremendous interest to borrowers (for whom they are a cost) and lenders (a category that includes individuals trying to get some return on their bank savings). Almost everyone is in one or both categories.

The level of short-term rates, such as those used by banks when loaning each other money overnight, is set by the Federal Reserve through its Open Market Committee, usually at regularly scheduled meetings.

Market interest rates, including those in money markets and offered on consumer products such as certificates of deposit, follow the Fed’s lead but are also subject to other influences — for example, risk, transaction costs and expectations of inflation. Generally, the longer the period of the loan, such as with 10-year Treasury Bonds or mortgages, the more important market factors become compared with the Federal Reserve’s actions. We forecast both what we expect the Federal Reserve to do in the near term and to what extent that will affect the direction of long-term interest rates. Read our current forecast »

Inflation Rate

Inflation is the generally rising price of goods and services, or why things cost more. It’s measured by the Department of Labor using a sample, dubbed a “market basket,” of what people in urban areas in the U.S. actually buy each month. Then each month, data collectors check on the prices of those items. From that research we get the Consumer Price Index (CPI).

A component of that index, the core inflation rate, which excludes the more volatile prices of food and energy, is also closely watched. At Kiplinger, we forecast changes in both.

Economists generally believe that moderate inflation of about 2% is best for an economy. Prices that are rising too quickly cause consumers heartburn, of course, but prices that are flat or falling are a problem, too. This condition, known as deflation, makes debts more expensive to pay back and can lead to declining business investment. Read our current forecast »

Business Equipment Spending

How much businesses are laying out in investment is critical to other businesses in guiding their own spending. In making our forecasts for the direction of business spending in the quarters and years ahead, we follow two indexes from the Census Bureau: Durable Goods Shipments and Orders and Business Inventories reports. Read our current forecast »

Energy

Like it or not, petroleum and natural gas remain incredibly important to the U.S. economy. Knowing where oil prices are headed is critical to businesses of all stripes, from airlines to plumbing companies. Consumers planning their family budgets and vacations care, too. Not only do we monitor Department of Energy reports, but we also talk to commodities traders and petroleum engineers to forecast price trends, changes in production technologies and consumer habits. Read our current forecast »

Housing

In addition to being the roof over our heads, housing is an important sector in the economy. Three statistics form the core of our coverage: sales of existing homes (and the prices those sales fetch); sales of new homes; and housing starts, which reflect new construction that is counted in GDP.

Because housing is a diversified and highly regional industry, our reporting and forecasting are informed by other research as well as conversations with industry experts as well. Read our current forecast »

Retail

Consumers are the engine of our economy, and when their spending flags, business feels it. We examine trends that are influencing their habits, such as falling gas prices, to forecast what they’ll be buying in the future and how much they’ll be willing to shell out both on everyday items and on big-ticket purchases such as cars and trucks. Read our current forecast »

Trade

All nations of consequence trade with others. Those that buy more from other countries than they sell in turn have a trade deficit, and that’s been the story for the United States since the mid-1970s.

How big that deficit will be, and whether the changes will result from more (or fewer) imports or more (or fewer) exports, is the crux of our forecasting. We look at specific sectors (such as agriculture) where the United States is doing well selling abroad, as well as what items (such as smartphones) we buy from overseas. We also discuss the strength of the dollar versus foreign currencies and how that affects trade trends. Read our current forecast »

Source: kiplinger.com